Credit card

We often consider credit cards as indispensable allies for shopping, but at times they may also become a source of difficulty if spending gets out of control. Credit cards certainly have their advantages, but they require some caution. Let us explain how they work, what costs they may entail, and how to manage the associated risks.

What is a credit card?

A credit card is a payment card usually linked to a bank or postal current account. It differs from other cards in that it allows you to pay even if you do not immediately have the necessary funds available; the amount spent is charged to the cardholder's account at a later date.

Imagine you need to pay a €35 bill at a pizzeria. When you pay with a credit card, the €35 is not withdrawn immediately from your account. Instead, the issuing institution - usually a bank or financial company - advances the amount on your behalf. After a set period, typically the following month as specified in your contract, the issuer debits the €35 from your account, usually by direct debit. In other words, the card provider has lent you the €35 with which you made the payment. This is why the card is called a 'credit' card. However, there is a spending limit (or credit limit), known as the plafond, which varies from card to card.

Since you are spending money that was advanced by the issuing intermediary, a credit card enables purchases even if you do not have sufficient funds in your account at the time of purchase. What matters is that you have enough money to repay your debt when it falls due.

Like other cards, the physical credit card is a plastic card embedded with a microchip and a magnetic stripe - though the latter is increasingly less used. The card displays the cardholder's name, card number, expiry date, payment network logo, a signature panel, and security elements such as the CVV or CVC code (Card Verification Value or Card Validation Code), typically found on the reverse side.

Using a credit card

To obtain a credit card, you must be of legal age and demonstrate your ability to repay the amounts advanced by the card issuer.

You may apply for a credit card through your bank (or Poste Italiane) by submitting an identity document, tax code, proof of income, and details of a current account for payments. The bank may offer you a credit card it issues directly or one issued by a partner bank or financial company with which it has an agreement.

Once you receive your card, you can use it in stores and online, to withdraw cash from ATMs, and to authorise recurring payments.

Purchases typically require you to enter a PIN known only to you, although this may not be necessary for contactless payments below a certain threshold.

There is a maximum amount you can spend - your credit limit or plafond - which resets at each repayment date and is determined by the card issuer. Daily spending and withdrawal limits also apply.

If your credit card is revolving, you repay the amounts spent in instalments rather than in full at the due date. Essentially, you are taking out an additional loan beyond the deferred payment granted by the issuer, with a repayment plan outlined in the contract. Some cards allow you to choose the instalment amount within certain limits.

There are also 'option' cards that let you choose whether to settle your balance in full or via revolving credit.

Typically, your credit card can be used abroad to pay in shops or withdraw local currency (e.g., pounds sterling in the UK). As is the case with other payment cards, higher fees may apply for such transactions.

Costs of credit cards

Credit cards usually involve higher costs than other payment cards, reflecting the service of money advance. Common costs include:

• annual fees;
• ATM withdrawal fees;
• currency conversion fees for foreign transactions.

Additionally, you should be aware that if you opt to pay in instalments with a revolving card, interest will be charged on each payment, increasing the overall cost.

Risks

With credit cards - especially revolving types - you risk borrowing more than you can repay. 

Other risks include card cloning, loss, and theft. Cloning is fraud where criminals copy your card data to misuse it. We recommend activating real-time payment notifications and regularly reviewing your card statements to promptly detect any unauthorised transactions.

If your card is lost or stolen, contact your issuer immediately - usually via a dedicated phone number - to block the card. You may be asked to file a police report; however, this does not affect your right to reimbursement if you have acted responsibly in safeguarding the card and identifying unauthorised operations.

To prevent risks, never leave your card unattended or store your PIN with the card. When shopping online, ensure the website is secure – look for a padlock icon in the browser address bar and 'https' in the URL. Be aware that scammers may imitate these signs in fake websites.

Finally, when paying in-store, always verify that the amount on the receipt matches the sum you authorised.